Financial Crime World

Central Bank of Bahrain Rules Clarify Capital Market Licensees’ Reliance on Third Parties for Customer Due Diligence

The Central Bank of Bahrain (CBB) has issued a clarification on rules regarding the reliance of capital market licensees on third parties for customer due diligence (CDD). This guidance aims to ensure that licensees comply with international standards and regulations in their anti-money laundering (AML) and combating of financial crime (CFC) efforts.

Reliance on Third Parties

According to the CBB’s Rulebook Volume 6: Capital Markets, Section AML-1.12, capital market licensees are permitted to rely on third parties for conducting CDD measures, provided that certain criteria are met:

  • Obtaining necessary information from the third party regarding customer identification and verification
  • Ensuring that copies of identification data and other relevant documentation are made available upon request without delay
  • Verifying that the third party is regulated and supervised for AML/CFC requirements in line with FATF Recommendations 10 and 11
  • Not relying on third parties from countries considered high-risk, non-cooperative or inadequately regulated

Written Agreement

Furthermore, licensees must enter into a written agreement with the third party outlining the rights, responsibilities, and obligations of both parties, including record-keeping requirements. In addition, if deficiencies are identified in the CDD measures undertaken by the third party, the licensee must reperform the CDD to remedy the deficiencies.

Reliance within Financial Groups

The CBB’s clarification also addresses the reliance on third parties within the same financial group, subject to certain conditions being met:

  • The group applying CDD and record-keeping requirements consistent with FATF Recommendations 10, 11, and 12
  • The implementation of CDD, record-keeping, and AML/CFC measures being supervised at a group level by a financial services regulatory authority for compliance with AML/CFC requirements consistent with standards set by the FATF
  • Country risk being adequately mitigated by the group’s AML/CFC policies

Conclusion

The clarification aims to ensure that capital market licensees in Bahrain are compliant with international standards and regulations, thereby protecting the integrity of the financial system. By relying on third parties for CDD measures, licensees can reduce their operational costs while ensuring compliance with regulatory requirements.